The book has been around for a while but Richard Saillant’s A Tale of Two Countries takes on fresh relevance in the wake of those unfortunate health side deals signed last month by three of the four Atlantic provinces. Saillant, director of the Donald J. Savoie Institute at the University of Moncton, exposes what he calls The Great Demographic Imbalance looming over the country. His book, which came out from Nimbus Publishing about six months ago, details the dire effect this region’s aging baby boom generation will have both on our costs of social services and our economy’s capacity to pay for those services.

The numbers, based on data and projections from Statistics Canada, are familiar by now, but sobering nonetheless. Over the next two decades (to 2038), the population of the Atlantic Provinces will decline and the economy will grow hardly at all. At the same time the over-65 share of the population will increase from 19% to 31% and real growth in health spending will exceed the national average by more than 40%.

We’ve heard stuff like that before, most notably in the Cassandra-like warnings in the Ivany report.

“Two interdependent factors – an aging and shrinking population and very low economic growth – mean that our economy today is barely able to support our current standard of living and public services, and will be much less so going forward unless we can reverse current trends.”

Differs from Ivany

But Saillant’s analysis is different from Ivany in several important respects. Rather than fretting about public services in general, he zeroes in on health care, the service most cherished by Canadians and the one most threatened by demographic imbalance. He calculates that the combination of rising health costs and a stagnant economy will result in the “two countries” of the title – with one of those countries made up of the five provinces east of the Ottawa River unable to afford “health care as we know it” without tax hikes that would “push residents to leave in droves.”

The second way in which he differs from the Ivany report is that he avoids the kind of magical thinking about our economic prospects expressed in passages like this from Ivany:

“We are not doomed to permanent have-not status: in an improving macroeconomic climate, driven by expanding global trade, Nova Scotia has the assets, opportunities, institutional capacities and human capital to turn around its current outlook and build a much more positive future.”

Saillant is rather more realistic, pointing out that innovation, immigration and resource development, although worth promoting, are not going to significantly affect the slow-growth economics caused by aging. “While population aging will depress growth across the country, its impact will range from moderate in the Prairies to devastating in Atlantic Canada.”

The proximate cause of this malaise – reflected by annual growth in the region averaging just 0.1% between 2013-2038 – is our past failure to attract immigrants and make babies. Going back in history, the causes of our weakness are more complex. But in Saillant’s view the dismal outlook for the next 20-plus years is mainly because fewer immigrants and a lower birth rate have left us with proportionally more baby boomers leaving the work force and fewer new workers joining it.

And there’s not a lot we can do about it.

“A few years of solid economic growth in eastern provinces will not meaningfully alter this reality. For eastern provinces to witness labour force growth in line with their western counterparts over the long term, they will need to consistently out-perform them on economic growth by a very wide margin. Such an outcome would run counter to more than a century of history.” (italics mine)

Improve equalization

The third, and most important way in which Saillant departs from Ivany is to emphasize the responsibility the federal government has to prevent the emergence over the next decade of two countries and two classes of citizenship. He writes: “Ottawa will need to transfer more money to older, faster-aging provinces if it wishes to avoid the balkanization of Canada’s welfare state.”

On the nature of those increased transfers, Saillant takes a different tack from that of the Atlantic premiers. Before their recent cave-in they had pressed halfheartedly for demographically-sensitive health transfers as a means to maintain national standards of care. Saillant suggests the mechanism should be equalization rather than health transfers. He fears large increases in the Canada Health Transfer would primarily fuel growth in compensation for health care professionals (as apparently happened when the 6% health transfer escalator was introduced in 2004). While he would leave the details of a reformed equalization program to experts led by Finance Canada, Saillant maintains that amendments should focus on “the one major trend changing the game: uneven regional aging.”

Turning the conversation to equalization is timely, particularly now that Nova Scotia, New Brunswick and Newfoundland have given up on the demographic top-up for health transfers. Moreover, equalization payments rate a prominent mention in the country’s constitution. Since 1982 it has been there in Section 36(2) as a federal government commitment “to ensure that provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation.”

But even with the son of the prime mover behind the 1982 constitution in power in Ottawa, Saillant does not seem to share the magical thinking on this I succumbed to in my book “Equal as Citizens” – my belief that the federal government can be convinced to honour its commitments and do what’s necessary to prevent the emergence of “two countries.” Saillant takes the position that we need to entice the federal government into doing the right thing with a bit of self-help (or perhaps self-flagellation). He says the poorer provinces should:

  • Raise taxes “moderately and prudently” from 16% of own-source revenues/GDP to closer to 20% prevalent in Quebec – rather than the 13% prevailing west of Quebec;
  • Foster economic growth by developing natural resources which “means taking a serious look at the potential of hydraulic fracturing of shale and other tight geological formations to extract oil and/or natural gas.”
  • Transform public spending, mainly by examining “resource intensity” in public schooling and age-adjusted health care.

Higher taxes, fracking for oil and gas and potential cuts in health and education spending do not an ideal political platform make. I would prefer to see our regional politicians and opinion leaders forcefully bring Section 36(2) of the constitution into the conversation, especially now that we mark 150 years of confederation while this half of the country faces permanent decline. But before they decide on tactics, they need to understand and acknowledge the problem. Saillant does a good job of laying it out for them, and us.